no there is always depreciation recapture when property is sold. living in it two out of the last 5 years ending with the date of sale entitles you to the home sales exclusion but depreciation you took when it was a rental must be recaptured. depreciation is not an option. the law for depreciation recapture is the amount allowed (taken) or allowable (should have been taken)
meet the two year rule examples
sell for $100,000
basis after reduction for depreciation $85,000
depreciation taken $10,000
depreciation recapture (section 1250) $10,000
capital gain $5,000 less home sale exclusion of $5,000 results in $0 capital gain
same as above but basis $95,000
depreciation recapture $5,000 (recapture limited to gain)
